(i) "Domestic income is always less than national income." Do you agree with the given statement ? Support your answer with valid arguments. (ii) Distinguish between positive externalities and negative externalities with suitable examples. (i) "In a two-sector economy, consumption expenditure by households is always equal to aggregate expenditure on goods and services produced by the firms." Do you agree with the given statement ? Support your answer with valid explanation. (ii) "Problem of Double Counting leads to overestimation of output in an economy." Justify the given statement with the help of suitable example.

Question

Accepted Answer

(i) Domestic income is NOT always less than National Income.

Reason:
- National Income = Domestic Income + NFIA
- If NFIA is positive, National Income > Domestic Income
- If NFIA is negative, National Income < Domestic Income
- If NFIA is zero, National Income = Domestic Income

The relationship depends on the sign and magnitude of NFIA.

(ii) Distinguish between positive and negative externalities:

Positive Externalities: Benefits of economic activity that affect third parties not directly involved. Example: Education creates positive externalities through informed citizenry.

Negative Externalities: Costs of economic activity that affect third parties not directly involved. Example: Pollution from factories creates negative externalities through health hazards.